By most measures, shares of AI cybersecurity outfit F5 (NASDAQ:FFIV) should be up today. Its fiscal fourth-quarter revenue improved 13% year over year to $917 million, topping consensus estimates of $884 million. Adjusted per-share earnings of $4.42 also beat expectations of only around $4.30, up slightly from the year-ago comparison of $4.39.
Yet, FFIV stock is well down today. As of 12:51 p.m. ET, in fact, shares are more than 19% lower. What gives?
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Investors are panicking over what the company’s guidance implies, although there’s important context to add to the market’s extreme bearish response.
Guidance suggests a slowdown
F5’s guidance for the quarter and the year ahead isn’t horrifying. Its top line for fiscal 2027 should grow between 8% and 9%, in line with consensus estimates. And, while the midpoints of earnings guidance ranges for the quarter and the year now underway are a tad shy of analysts’ consensus figures, they still suggest respectable profit growth is in store from last year’s $17.49 per share.
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The stumbling block is what the guidance numbers suggest. That’s slowing growth and shrinking gross profit margins, ultimately suggesting that a major cyclical refresh of key product lines has already peaked. This prompted Piper Sandler to downgrade FFIV stock from overweight to neutral.
The market took that ball and ran with it, so to speak.
Perspective
The sheer scope of today’s setback, however, is exaggerated given the company’s past and projected results. And fanning today’s bearish flames is the fact that, as of yesterday’s close, shares were up nearly 80% since the beginning of the year, leaving them vulnerable to profit-taking regardless of F5’s fourth-quarter results or forward-looking guidance. Investors just appear to be interpreting guidance in the worst possible light.
But, the sellers may have overshot their target.
Even before today’s tumble and downgrade from Piper Sandler, the analyst community’s consensus price target was $457.44, versus the ticker’s current price near $370. Moreover, while Piper may have downgraded FFIV, Evercore ISI raised its price target in response to F5’s fourth-quarter report, as did Barclays and Morgan Stanley. If you can stomach the volatility that likely awaits, today’s sell-off is arguably a buying opportunity for risk-tolerant investors.
